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Sir why are the below cases not considered when making a make vs. buy decision?
The saved labour costs of the production staff re?directed to other work.
The amount of re?allocated rent costs caused by using the production space differently.its mentioned in my kaplan exam kit under section A and they haven’t provided any justification for their exclusion so could you please explain sir.
thank you!
It is difficult for me to give a precise answer without seeing the whole question.
However, on what you have typed, the labour is not relevant because the company will not save any money overall – if the labour is redirected to other work then the company will still be paying them.
Allocated rent costs will certainly not be relevant. The company can allocate (i.e. share out) the rent costs between different products or divisions of the factory in any way they want, but sharing them differently will not change the total rent cost to the company. Rent would only be relevant if they ended up closing part of the factory and actually saving some of the rent.
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